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Tensions Over Proposed Restrictions in FCC Auction Exposed During Hearing

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For months now, wireless industry lobbyists, academics, and members of Congress have engaged in a slashing debate over whether the largest two carriers in the United States--Verizon Wireless and AT&T--should be allowed to participate without restrictions in the Federal Communications Commission's planned auction of broadcast TV spectrum.

On July 23, those deep divisions spilled into public view in a testy exchange that reflected one of the most difficult issues facing the FCC as it looks to finalize rules for the auction later this year.

“Potential licensees should be courted as participants--not subjected to economic manipulation at the hands of the FCC,” Rep. Greg Walden (R-Ore.) said at the start of a hearing on the matter before the House Energy and Commerce Communications and Technology Subcommittee, which he chairs. “…It would be folly at best for the FCC to think that it could know better than a true market-based auction the maximum amount the auction could raise.”

The debate began in April, when the Department of Justice's Antitrust Division urged the FCC to consider “caps, weights, and other measures” to ensure that Sprint Nextel Corp. and T-Mobile USA Inc., the two smaller nationwide wireless carriers, can gain access to spectrum given up by the TV broadcasters--coveted frequencies below 1 gigahertz, whose signals pass through walls with less attenuation, resulting in better in-building penetration.

The DOJ's recommendations, laid out in a 25-page ex parte submission, was invoked repeatedly during the hearing, with either veneration or disdain.

“The FCC must promote a competitive landscape for carriers of all sizes,” said Rep. Anna Eshoo (D-Calif.), the ranking member of the subcommittee, who along with Rep. Henry Waxman (D-Calif.) suggested that the Republicans ignore Section 6404 of the Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. No. 112-96), which added a new paragraph 17 to section 309(j) of the Communications Act to address the issue of auction participation while preserving the FCC's authority to protect against undue concentration of spectrum holdings.

“No party that I'm aware of is urging the FCC to exclude the two biggest companies from participating in the auction,” Waxman added.

But conversely, Republicans believe the DOJ's recommendations run contrary to Congress's goals in writing the statute, namely raising revenue--an estimated $15 billion, including $7 billion for the building a new nationwide emergency communications network for public safety officials, the last unfulfilled recommendation of the 9/11 Commission.

Their main fear is that if the largest and deep-pocketed carriers are excluded, the auction will yield much less revenue for the General Treasury.

“Gerrymandering the incentive auctions to give regulatory favor to some over others is illegal and threatens auction success,” said Rep. Marsha Blackburn (R-Tenn.).

T-Mobile Fears Verizon, AT&T Will 'Divide and Conquer.'

But Kathleen Ham, vice president of federal regulatory affairs for T-Mobile, disagreed, arguing in testimony to the subcommittee that successful auctions are those with many bidders, large and small.

Ham was an FCC staff member when the agency in 1996 auctioned off a swath of licenses for a new type of cellular service, called Personal Communications Services, or PCS, which fetched huge prices, raising $10.1 billion for the Treasury.

This time around, with the amount of broadcast TV spectrum available for auction still an open question, the pressure is even greater on the FCC to avoid consolidation by the two largest carriers, she said.

“If there's less spectrum here, there's a much greater likelihood that AT&T and Verizon divide and conquer,” Ham said.

In June, T-Mobile proposed what it is calling a “Dynamic Market Rule,” which would allow all carriers to bid on and buy at least 10 megahertz of spectrum in every market, but place restrictions on acquiring more than that amount in some circumstances.

During the hearing, Harold Feld, senior vice president of the public-interest group Public Knowledge, similarly called for a “no piggies” rule, under which the FCC would not ban anyone from the auction, but instead set limits what any one participant can win.

“This is the last chance to get low-band spectrum into the hands of competitors,” Feld said.

AT&T Resists 'Separate Shadow Auction.'

At several points during the hearing, Joan Marsh, vice president of federal regulatory for AT&T, pushed back against criticism that the company already has an unfair advantage heading into the FCC's incentive auction.

Based on recent activity in the wireless industry, there is no reason to relegate Verizon and AT&T to a “separate shadow auction,” she said.

Japan-based Softbank Corp. this month acquired a controlling stake in Sprint, and is giving Sprint a $5 billion cash infusion to help it expand its 4G LTE (fourth-generation, long-term evolution) mobile broadband network and potentially cut more deals. Also this month, Sprint completed a buyout of wireless network operator Clearwire Corp. (the No. 5 carrier), which holds more than 9,000 2.5 gigahertz spectrum licenses and leases covering 411 of the 493 basic trading areas, or BTAs, in the country, an average of 120 MHz to 150 MHz across its geographic footprint--by far the largest single spectrum holder among wireless carriers, even including Verizon and AT&T.

In May, Deutsche Telekom AG, T-Mobile's parent company, scooped up MetroPCS Communications Inc. (the No. 6 carrier) to combine it with T-Mobile; a month later, T-Mobile entered into a $308 million deal to buy spectrum from U.S. Cellular Corp. (No. 7).

“There is no basis to conclude they [Sprint and T-Mobile] need special rules to win,” Marsh said.

FCC Looking to Hold Auction in 2014

Though many within the wireless industry are skeptical that the FCC can finalize auction rules in 2013 and conduct the auction in 2014, Gary Epstein, head of the FCC's Incentive Auction Task Force, told the subcommittee that agency staff members are working hard to meet those deadlines.

“We will do everything we can to empower the commission” to vote on an order this year, he said.

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